Mutual fund investment has been largely preferred across the country by risk-averse investors and the people who are not capable of investing directly in the stock markets.

New Delhi: Mutual fund investment has been largely preferred across the country by risk-averse investors and the people who are not capable of investing directly in the stock markets. Retail investors have been continuously pumping money in mutual funds through the Systematic Investment Plan (SIP) route. According to the February 2019 data released by the Association of Mutual Funds of India (AMFI), mutual funds have gathered about Rs 8,095 crore via SIP route in February 2019, a year-on-year growth of 26 per cent.

Over the course of time, mutual fund SIPs have become more favourite as relatively compared to the periodic investment in bank recurring deposits and other government-backed investment options such as post office deposits, insurance schemes, etc. Mutual funds are highly-diversified and well-managed portfolio of assets. Mutual fund investors should still watch for a few useful things before deciding the suitable scheme for them. Before investing in mutual funds, investors should check whether the mutual fund is certified and regulated or not.

Here are three important things to look before investing in mutual funds

Past performance

The past performance of a mutual fund scheme doesn’t guarantee that it will perform better in future too. However, all the investors should look at the past performance to check how the scheme has performed over a period of time and during the heightened market volatility. Good past performance might indicate the return potential of the mutual fund scheme and may also present a relative picture of the fund’s strengths and weaknesses.

Holdings in portfolio

Every mutual fund scheme is constructed with a mix of assets or a mix of diverse units of the same asset class. For instance, there are a bunch of selective stocks in the equity mutual fund scheme which are chosen on the mutual fund type such as index funds, large-cap equity mutual fund, small-cap mutual fund, multi-cap mutual fund, etc. Looking briefly at the mutual fund holding provides a holistic view of the fund’s performance and the proportion of sectors from which the stocks are taken.

Exit load

Exit load is the fees charged by the mutual fund houses at the time of redemption. Investors should thoroughly double-check the exit load of a mutual fund scheme, be it a debt mutual fund or an equity mutual fund or an index fund. Mutual funds usually charge a rate of up to 3 per cent as the exit load. The higher will be the amount at the redemption, higher will be the relative exit load.